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What are Stock Options – Their Types and Benefits

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Overall, stock options offer a viable means to earn lucrative profits by gaining power to control more shares with a small amount of money.

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									What are Stock Options – Their Types and Benefits

If you are wondering what are stock options, then you should read through this
article to find out more about them. In simple terms, stock options provide the
holder the right to buy or sell stocks at a price agreed upon by the involved parties
before the contract expires. Of all the available investment routes, stock options are
perhaps the most flexible, creative, and innovative financial derivative instruments
ever created. Option trading is not only limited to those who are involve in the stock
market but they are also made available for employees who wish to participate in
the growth of their company. Before deciding to participate in this kind of trading
practice, it is important that you have a deep understanding on how it works.

Stock options can be classified in several forms which include the following:

    Over the Counter Stock Options – These are highly customized stock options
     that are traded over OTC market. They have lesser liquidity and are not widely
     accessible to the public.

    Exotic Stock Options – These are complex and customized types of stock
     options that are only traded in OTC markets.

    Employee Stock Options – These are stock options that are typically offered by
     companies to their employees. With employee stock option, the company
     acts as the seller while the employees are the buyers. Companies usually give
     them as a form of incentives to their employees.

    Exchange Traded Stock Options – These are stock options that give owners
     the right but not the obligation to purchase or sell financial assets. ETO
     contracts typically include the quantity of the stock, the underlying asset, and
     the expiration date.

Many are attracted on acquiring stock options due to the following reasons:

    They require small capital but provide greater leverage.
    They offer flexibility to change from one market to the other without
     significantly affecting current share holdings with the help of synthetic
     positions and synthetic option strategies.
    They do not have margin requirements, and maximum loss is only limited to
     the amount of money invested on the contract.

Overall, stock options offer a viable means to earn lucrative profits by gaining power
to control more shares with a small amount of money.

								
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